Does China Have Too Many Trademarks?

2017-09-21

The United States and China are the two busiest jurisdictions in the world for trademarks, with radically different approaches. The USPTO requires applications to be narrow in scope: the identification of goods/services can only include goods/services the applicant is actually using or has a bona fide intent to use, and before the application can proceed to registration the applicant must provide proof of such use. Subsequently, in order to maintain a valid registration, trademark owners must provide proof of continued use.

China, meanwhile, strongly prefers goods/services be identified according to the Nice Classification system, and it has no requirement that an applicant prove use at any time. The one exception is the non-use cancellation proceeding, by which a third party can challenge a trademark registration. Following such a challenge, if the trademark owner cannot provide proof of use within the three prior years, the trademark registration will be cancelled. But absent a third party challenge, the trademark will remain valid. The Chinese Trademark Office (CTMO) does not conduct sua sponte investigations.

Over the past 10-15 years, China has encouraged trademark applications in both explicit and implicit ways. In an interview last year with WIPO, Zhang Rao, the Commissioner of the State Administration for Industry and Commerce (SAIC), which oversees the CTMO, identified five factors driving the large numbers of trademark applications:

The Chinese government’s goal of boosting “mass entrepreneurship and innovation.”

The implementation of the 2014 Trademark Law, which was an improvement on the previous trademark law.

SAIC authorities’ and market regulators’ work to create a level playing field for all regarding trademark rights.

SAIC’s efforts to improve the efficiency and accessibility of trademark applications, with a particular focus on online applications.

Extensive outreach efforts to increase public awareness of the value of registered IP.

To Zhang’s comments I would add:

Because it is difficult to invalidate a trademark registration in China because of bad faith, it incentivizes trademark squatters to file trademark applications “on spec,” and similarly incentivizes legitimate brand owners to file far more trademark applications in far more classes than they would (or could) file in other jurisdictions.

The Chinese government has operationalized its goal of boosting innovation (Zhang’s first point above) with a numerical pay-for-play scheme: more filings = more money. Mark Cohen’s China IPR Blog has commented on this strategy numerous times with respect to patents; I don’t know for certain if trademarks have been promoted the same way but wouldn’t be surprised.

For all of these reasons and more, China has seen a staggering increase in the number of trademark applications: more than 760,000 trademark applications were filed in 2006, and that number increased to 2.8 million in 2015. In the US, the second busiest trademark jurisdiction, fewer than 400,000 trademark applications were filed in 2006, and slightly more than 500,000 in 2015. (The statistics are from WIPO using class count data: an application in two classes counts as two applications, an application in three classes counts as three applications, etc.) And China continues to widen the gap; in 2016, more than 3.6 million applications were filed.

Meanwhile, the CTMO has been hiring a number of young, inexperienced trademark examiners whose default position is to reject any application that seems like it might conflict with a previously filed trademark.

This all adds up to an increasingly inhospitable environment for filing trademark applications in China. Every new trademark application is another potential conflict for subsequently filed applications. Our China trademark team has seen an uptick in rejections in our day-to-day work, and though it’s hard to prove causation it sure doesn’t feel like a coincidence.

To make things even more complicated, there’s a disjunction between the standard for trademark infringement and the standard for trademark registration, with the latter being considerably more strict. That has led to a number of trademarks that are in a strange sort of limbo: too similar to existing marks to be registered, but not so similar as to constitute infringement were they to be used. This effectively places such trademarks in the public domain. If a company’s goal is simply to manufacture products in China without fear of someone else interfering with production or exports, all is well. But if the goal is establish a brand name in China, the only answer is to find a new brand name.

The moral of the story is that to succeed with trademarks in China you must register your trademarks both early and often, and conduct meaningful searches before filing each and every application. Even if a trademark squatter doesn’t take your exact mark, one of the millions of new trademark applications each year might block your application on other grounds.